State pension to rise to £175.35 a week from April 2020

The new state pension will rise to £175.35 a week from April 2020, after it was confirmed that CPI inflation grew by 1.7 per cent in September 2019.

The basic state pension for those who reached pension age before April 2016 will also increase from £129.20 to £134.37 as well, as reported average earnings for the three months to July 2019 increased by four per cent — well above the triple lock’s other (2.5 per cent) state pension increase benchmark.

As well as an increase in the state pension, the CPI inflation figure means that the pensions lifetime allowance will also go up by about £17,935, to a new limit of £1,073,000 from the new tax year.

Next year’s state pension rise will be the third highest increase since the triple lock guarantee was introduced in 2011. It will also be the third time the state pension has been increased by wage growth, prompting renewed questions over the long-term viability of the triple lock guarantee.

AJ Bell senior analyst, Tom Selby, said that the increase was great news for retirees, but with it more than doubling the rise in average prices in September, it could test politicians’ resolve over whether or not to support the policy during the next General Election campaign.

“The commitment of politicians to this policy is likely to be tested,” said Selby.

“On the one hand the triple-lock is quite an odd policy, increasing the real value of the state pension arbitrarily when earnings and inflation are low. It could be argued a more rational policy would establish what level a ‘fair’ state pension should be, raise the benefit to that amount and then remove the 2.5 per cent element.

“However, it is likely the issue will become weaponised in the cauldron of an election battle as politicians desperately seek voter approval. Given older people usually head to the ballot box in the greatest numbers, it is extremely unlikely any party will propose significant changes to this popular policy in their respective manifestoes.”

Calls have also been made to review the annual and lifetime allowance contribution rules in light of the latest inflation figures. Although the lifetime allowance will go up, the annual allowance remains frozen at £40,000.

Canada Life technical director, Andrew Tully, said that although the small increase in the amount people can save into a pension before being hit by the lifetime allowance tax was helpful in some cases, it was nevertheless time for a “fundamental rethink” of the tax rules around pensions as recent government figures have shown that many more people are being caught in the lifetime allowance tax net.

“Simply ditching it as we already limit annual contributions would simplify the system and not penalise those people who are enjoying good investment growth,” said Tully.

Royal London pension specialist, Helen Morrissey, added: “Today’s CPI figure […] exposes the real lack of joined up thinking when it comes to this ridiculously complex web of tax allowances and highlights the need for urgent reform.”

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